AAA-rated cos in India among the lowest in emerging markets: Crisil

The percentage of AAA rated companies in India is among the lowest among emerging markets. However, even those rated AAA in India cannot be compared with similar rated companies around the world, rating agency Crisil said in a note.

AAAs in India make up only 0.85 per cent of the overall rated universe, which is far lower than corresponding metrics in countries such as China, Taiwan, Thailand and South Korea, the rating said after analysing national ratings data from these countries.

South Korea’s Korea Rating, which rates 68 per cent of the companies in the country, has rated 17 per cent of the portfolio rated by it at AAA while Korea Investor Services has rated 13 per cent of its rating portfolio at AAA. Similarly, 13 per cent of the all credit ratings in China are at AAA while the ratio stands at 9 per cent for Taiwan and 5 per cent for Thailand.

Crisil said companies rated AAA domestically cannot be compared with the global ratings at the same level. “A national rating scale affords granular benchmarking of domestic issuers on a 20-point scale (AAA to D) and the sovereign, which has the flexibility to print local currency, is pegged at AAA on this scale,” Crisil said.

The AAA accorded to Indian companies cannot also be extrapolated on a global scale. “If around 32,500 rated Indian companies were to be assessed on the global scale, their ratings will be boxed on a far narrow bound between BBB category and D on the global scale because India’s sovereign rating (in the BBB category) will usually serve as a ceiling,” Crisil said.

On a global scale too, there has been a steady decline in the number of AAA-rated companies. At S&P Global Ratings, it reduced from 89 a decade ago to nine as of January 1, 2018. For Moody’s, it went from 170 to 53.

AAA-rated firms accounted for less than 5 per cent of bond issuances in the US in 2017, A and BBB accounted for over 60 per cent, and speculative grade around 20 per cent.

“Over the past decade or more, companies in the developed economies have relied more on debt in their quest to increase shareholder value. When reliance on debt increases, financial risk also rises leading to a lowering of credit ratings. The width and depth of the corporate bond markets in these geographies and ultra-low borrowing costs over the past decade have also encouraged the shift to debt-driven growth,” said Gurpreet Chhatwal, president, Crisil Ratings.